Front Street Small Cap Canadian Fund and Front Street Special Opportunities Canadian Fund Ltd. - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Application -- Exemptive relief granted to mutual funds allowing extension of prospectus lapse date to allow for proposed Reorganization to be voted on and completed and extension of distribution beyond previous lapse date- if Reorganization approved, funds would be sold under the renewed prospectus for a short period of time- granting the relief would not affect the currency or accuracy of the information provided to the market since amendments will be filed for any material changes to the affairs of the Funds unrelated to the Mergers, if any, since the filing of its prospectus- cancellation rights for new investors who purchased after the previous lapse date imposed as condition.
Applicable Legislative Provisions
Securities Act, R.S.O 1990, c. S.5, as am., ss. 62(5), 147.
April 5, 2007
IN THE MATTER OF THE
SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NOVA SCOTIA,
NEW BRUNSWICK, NEWFOUNDLAND AND
LABRADOR, PRINCE EDWARD ISLAND,
YUKON TERRITORY AND NUNAVUT
(the "Jurisdictions")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
FRONT STREET SMALL CAP CANADIAN FUND AND
FRONT STREET SPECIAL OPPORTUNITIES
CANADIAN FUND LTD.
(collectively, the "Filers")
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (each a "Decision Maker", and together, the "Decision Makers") in each of the Jurisdictions has received an application dated February 21, 2007 (the "Application") from the Filers for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") that the time limits for the renewal of the simplified prospectus of the Filers dated March 24, 2006 (the "2006 Prospectus") be extended to those time limits that would be applicable if the lapse date of 2006 Prospectus of the Filers was May 15, 2007.
Under the Mutual Reliance Review System for Exemptive Relief Applications
a. the Ontario Securities Commission is the principal regulator for this Application, and
b. this MRRS Decision Document evidences the decision of each Decision Maker, as applicable.
Interpretation
Defined terms contained in National Instrument 14-101 - Definitions have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filers:
1. Front Street Capital 2004 (the "Manager") is the manager of the Filers.
2. The Filers currently distribute their securities in each of the provinces and territories of Canada pursuant to the 2006 Prospectus. The earliest lapse date of the 2006 Prospectus under the Legislation is March 24, 2007.
3. The Filers are reporting issuers (or the equivalent) as defined in the Legislation and except as described herein are not in default of any of the requirements of such Legislation.
4. There have been no material changes in the affairs of the Filers since the filing of the 2006 Prospectus, other than those changes or proposed changes for which amendments have been filed including filing of the financial statements and management report of fund performance for the financial year of the Front Street Special Opportunities Canadian Fund Ltd. ended October 31, 2006, which are incorporated by reference in the 2006 Prospectus. Accordingly, the 2006 Prospectus represents current information regarding each Filer.
5. The Manager had intended to seek approval from the securityholders of the Filers for a reorganization (the "Reorganization"), which would involve (a) a reorganization of the capital structure of Front Street Special Opportunities Canadian Fund Ltd. ("SOF") to convert it from a conventional mutual fund corporation into a "capital class fund" having multiple classes of shares each referable to a particular investment portfolio; (b) the merger of Front Street Small Cap Canadian Fund ("Small CAP"), into SOF; and (c) a change to the investment objectives, strategy and restrictions of SOF and each of its share classes to convert it from a mutual fund subject only to NI 81-102 in respect of its investment operations to a mutual fund subject to National Instrument 81-104 Commodity Pools ("NI 81-104").
6. To have filed a pro formal renewal simplified prospectus and annual information form for the Filers at a time when the Reorganization was contemplated would have been unduly costly and potentially confusing to investors in the Filers.
7. The Manager has now determined that it is not in the best interests of the unitholders of Small Cap to proceed with the merger of Small Cap into SOF at this time, and accordingly expects to file a pro forma renewal simplified prospectus and annual information form for Small Cap as soon as possible after this relief is granted, if granted (the "Small Cap Prospectus").
8. No material changes have occurred to Small Cap since the date of the 2006 Prospectus.
9. The Requested Relief as it relates to Small Cap is necessary to permit Small Cap to file the Small Cap Prospectus on a pro forma and then final basis.
10. The Manager does intend to proceed with the Reorganization as it relates to SOF and will seek the approval of the shareholders of SOF at a special meeting (the "Meeting") to be held on May 10, 2007.
11. On March 15, 2007, the Manager issued and filed on SEDAR a press release announcing the calling of the Meeting and describing the Reorganization.
12. The Manager will file on SEDAR a material change report and an amendment to the 2006 Prospectus as it relates to SOF as soon as possible after this relief is granted, if granted.
13. Shareholders of SOF of record on April 2, 2007 will receive a notice of the Meeting, form of proxy and information circular (collectively, the "Circular") describing in detail the changes in respect of which such shareholders will be asked to vote at the Meeting, which documents will also be filed on SEDAR.
14. The Manager intends to file a preliminary long form prospectus (the "81-104 Prospectus") relating to the offering of the various classes of shares of SOF, in accordance with the requirements of NI 81-104 and to seek such relief as may be required in respect of the Reorganization under NI 81-102. If the Reorganization is approved, it is anticipated that the changes will be fully implemented on or before May 31, 2007.
15. If the Reorganization is approved, the offering of shares of SOF will thereafter be effected pursuant to the 81-104 Prospectus. If the Reorganization is not approved, a simplified prospectus and annual information form relating to the offering of the shares of SOF will be filed first on a preliminary and then on a final basis (the "81-101 Prospectus"). No offering of shares of SOF will be made under the 2006 Prospectus from and after the date a decision document is issued by the Decision Makers for the final Small Cap Prospectus, and the distribution of the shares of SOF shall cease from that date until the date a decision document is issued for the 81-104 Prospectus or for the 81-101 Prospectus.
16. The Manager will file an amendment to the 2006 Prospectus as it relates to SOF with respect to the proposed Reorganization and the consequences thereof as soon as possible after this relief is granted, if granted, and the consequences thereof and therefore the 2006 Prospectus, as so amended, will contain current information regarding SOF.
17. The Filers have continued to distribute their securities in anticipation of the Requested Relief being granted, and through inadvertence the 2006 Prospectus lapsed prior to this decision being granted.
18. The granting of the Requested Relief will not affect the accuracy of the information in the 2006 Prospectus and therefore will not be prejudicial to the public interest.
Decision
The decision of the Decision Makers pursuant to the Legislation is that the time limits provided by the Legislation as they apply to a distribution of securities under the 2006 Prospectus are hereby extended to those time limits that would be applicable if the lapse date of the 2006 Prospectus was May 15, 2007; provided that investors who purchased securities of the Filers after March 24, 2007 and before the date of this decision have the same rights against the Filers as would have been available to such investors under the Legislation, as referenced in the 2006 Prospectus under the heading "What are your legal rights?", had this decision been made prior to March 24, 2007.